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How to Refinance Student Loans with Bad Credit

By Kayla Korzekwinski

Kayla Korzekwinski is a Scholarships360 content writer. She earned her BA from the University of North Carolina at Chapel Hill, where she studied Advertising/PR, Rhetorical Communication, and Anthropology. Kayla has worked on communications for non-profits and student organizations. She loves to write and come up with new ways to express ideas.

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Updated: May 4th, 2022
How to Refinance Student Loans with Bad Credit

Refinancing student loans can earn borrowers a lower interest rate and the convenience of one monthly payment. However, refinanced loans have eligibility requirements regarding credit scores. Refinancing and consolidating student loans with bad credit isn’t impossible, though. Continue reading to learn more about how to refinance student loans with bad credit!

Don’t miss: Scholarships360’s free scholarship search tool

What is refinancing?

Refinancing allows borrowers to trade multiple student loans for a single private loan from a bank or similar company. The private lender will pay off the existing loans and give the borrower a new one that combines the loan values. Refinancing can be used on private student loans, federal student loans, or both. 

See also: How to consolidate and refinance student loans

Refinancing is useful because it gives the borrower the convenience of making one monthly payment on one loan instead of multiple. Borrowers can also receive a lower interest rate on the new loan. 

In order to refinance student loans, you need to have good credit. Most lenders require a minimum credit score of between 650 – 680. If you don’t meet the credit requirements, you have a few options.

Compare lenders

Each refinancing lender has its own eligibility requirements. If your credit score isn’t high enough to refinance with one company, it may be accepted by another. There may be other factors, such as income, that make you eligible for one lender but not another. For example, Earnest has a minimum credit score of 650, but no income requirements.

Compare lenders to find the most suitable refinancing company for your situation. You may also find a better interest rate by doing this!

Also see: How to use a student loan marketplace

Improve your credit score

Instead of taking out another loan, it might be best to spend time improving your credit score. A higher credit score can earn applicants a better interest rate. Credit scores can be improved by paying off other debts and keeping a low debt-to-income ratio. For example, paying a credit card bill on time and in full can improve your credit. So can making payments on your student loans.

Another way to improve your credit score is to raise your income. This will lower the debt-to-income ratio. Take on a side job or pursue a higher-paying job while working to improve your credit score.

You can check your credit report from each of the major lenders–TransUnion, Equifax, and Experian–once per year for free. Checking your credit report will help you keep track of your debts and your debt-to-income ratio. 

See also: How do student loans affect credit?

Use a co-signer

If the applicant doesn’t have a good enough credit score to refinance, they can use a co-signer. This will make an applicant with poor credit more likely to be accepted. A creditworthy co-signer can also earn the borrower a lower interest rate.

A co-signer is a person, other than the student borrower, who agrees to take on equal responsibility for the repayment of a loan. The refinanced loan will appear on both the primary borrower and co-signer’s credit reports. This means the loan can affect both people positively and negatively. The co-signer must have excellent credit and a steady income. 

See also: How to find a cosigner

Consider other options

If you have federal loans, there are options to consider before refinancing. If you are refinancing to lower your payments, consider enrolling in an income-driven repayment plan (IDR). There are 4 IDRs offered by the Department of Education. Each of these plans base monthly payments on the borrower’s income. If you have a lower income, an IDR can get you lower monthly payments. 

Another option for federal loans is consolidation. This allows borrowers to combine their federal loans into a new, single federal Direct Consolidation Loan. If you are looking for the convenience of having one monthly payment and have federal loans, consolidation is a good option. Consolidation comes with more benefits than refinancing. For example, you can choose to repay your Direct Consolidation Loan on an IDR. Consolidation has no credit requirements.

Also see: What is a student loan credit score?

Do your research!

If you’re looking into refinancing and/or consolidating student loans with bad credit, don’t be deterred! If you do your research, budget wisely, or seek out a co-signer, you can be eligible for a refinanced student loan!

Don’t miss: Scholarships360’s free scholarship search tool

Frequently asked questions

Will consolidating student loans affect credit?

Consolidating student loans should not have any substantial effect on your credit score. If your consolidation requires an official credit check, it could cause a temporary reduction to your score. However, this occurs any time you apply for any new loan or credit card, and will not affect it dramatically nor remain for a long time. Once they are consolidated, their new status will not have any negative or positive effect on your score.

Should I consolidate my student loans during Covid?

During the COVID-19 pandemic, we have seen interest rates fall substantially. Some have used this as an opportunity to refinance and consolidate student loans to secure more favorable interest rates. This can be a great idea, especially if your loans have high interest rates.

Keep in mind, however, that before consolidating federal loans into private ones, you should take account of the federal loan benefits you are foregoing. That includes flexible repayment plans, eligibility for public service loan forgiveness, and even the possibility of widespread forgiveness.

Can you be denied student loan consolidation?

You may not qualify for student loan consolidation if you are in bad standing with your lender. However, in most cases, consolidation should be a relatively easy process, as it is more of a logistical shift than a substantive one.

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